Senate report calls for review of tariffs, fees to close Canada-U.S. price gap

The Senate finance committee has made four recommendations aimed at reducing the Canada-U.S. price gap, in a report released Wednesday after months of investigation.

The committee was probing why goods in Canada can be so much more expensive than in the United States, a price gap that can mean Canadians pay as much as 40 per cent more for an item than a consumer south of the border.

The recommendations include:

that the finance minister “conduct a comprehensive review of Canadian tariffs” slapped on goods coming into Canada. The committee found that in some cases, tariffs that are in place are protecting an industry that no longer exists;

better integration of safety standards between the two countries. “If they’re different, they should be different for a reason,” committee Chair Sen. Joseph Day told reporters. “If they’re different, it’s going to cost more”;

considering an increase in the minimum threshold at which low-value shipments are taxed (they currently face the same taxes and tariffs as larger shipments);

that the Heritage Minister look at reducing the 10-per-cent mark-up Canadian distributors can put on the U.S. price of a book they have the exclusive right to distribute, a figure that was to have been an upper limit, Day told CTV’s Power Play, but has become the norm. “Why do we need to have in the copyright act a rule that allows for a monopoly to exist?”

In previous years, the price gap has been blamed in part on the low Canadian dollar. However, the loonie has been at or near parity in recent years, leaving consumers scratching their heads. The loonie closed Tuesday trading at 100.38 cents US.

“Canadians are saying, ‘What’s going on here,’ especially with the dollar at parity for some time now with the U.S.,” Day told Power Play. “Having studied this now for a year, I can tell you that we found no examples of gouging going on. We found a number of factors that we know influence price differences, and some things that the government could do that would help us improve or bring closer together the prices between Canada and the U.S.”

The Senate committee said it heard from government officials, consumer groups, retailers, importers and exporters, economists and other stakeholders to get a look at every perspective of what it called “a complex issue.”

The committee found that every product it examined for pricing -- from clothing to cars to books -- had a number of factors influencing cost, whether it be transportation, market size or tariff rates. Therefore, “the Committee cannot offer an explanation as definitive as it would have liked for the price discrepancies for products between Canada and the United States.”

But the committee hopes its report helps Canadians better understand the various causes of the price gap, and that the four recommendations ultimately lead to change.

“As more Canadian consumers become aware of smartphone applications and Internet sites for price shopping and comparison, and become price-savvy consumers, competitive pressures in Canada will increase and the price for products in Canada will converge to U.S. prices,” the committee said.

According to a recent BMO Nesbitt Burns survey, the price disparity affects a range of products, from books to electronics to clothes. For example, a cost comparison of running shoes, a lawnmower and a child’s backpack shows:

In Canada, the running shoes cost $146, compared to $107 in the U.S.

The lawnmower costs $479 in Canada, while its price tag is $361 in the U.S.

The backpack is $44 in Canada, while it is $26 in the U.S.

As a result of the disparity, Canadian retailers are concerned for their future viability; it is easier than ever now for shoppers to go where the best price is, be it online or a drive across the border to an outlet mall in the U.S.

Karen Proud of the Retail Council of Canada said looking at where tariffs can be removed or lowered is a key issue for Canadian retailers.

“If retailers could lower their prices to that of the U.S., they would,” Proud told Power Play. “All we’ve been asking for is a level playing field. And we think if the government would adopt some of these recommendations, it’s not going to go all the way to that, but it’s going to be a very good start and it’s going to help the retailers who frankly have been suffering.”

Jennifer Barranger-Almeida, a reprographic operator at the University of Windsor and a married mother of a one-year-old, said she shops in Detroit and online to take advantage of the consistently lower prices south of the border.

“It’s crazy how much money you can save,” Barranger-Almeida said in a telephone interview. “I do it all the time. I do my grocery shopping over there, a lot of it.”

The 34-year-old says the three-minute drive to the border makes shopping in Detroit very easy, and the prices mean big savings. Although tolls are $5 each way, she buys duty-free gas at .90 cents a litre and then saves on everything from food to sunscreen to makeup.

Cheaper items include a gallon of milk at $2.49, boneless skinless chicken breasts for $1.87 pound -- “$3.99 is the cheapest you ever see it in Windsor,” she says -- and products like moisturizer and deodorant, which run are priced 25 per cent to 30 per cent less.

Anything she can’t get in-store she buys online and ships to a friend in Michigan. A pair of shoes she recently purchased were selling at a Canadian site for $130. She bought them from a U.S. site for $89.

Asked if she would shop more in Canada if prices evened-out, she said she would: “For sure, because I live up the street from two grocery stores.”

However, she finds a wider selection at U.S. stores.

“Certain items I would still go over for, but I wouldn’t feel this intense need when we’re over there to buy two gallons of milk,” she said. “We stock up. It’s like, ‘Don’t come back without milk.’”

Mel Fruitman, a vice president with the Consumers’ Association of Canada, said the issue of dairy and poultry prices can only be addressed by looking at Canada’s supply management system, which was not covered by the report.

“They didn’t deal with one of the major issues that actually leads to cross-border shopping, and that’s supply management, which causes a huge difference in prices in many of the products that we consume daily: eggs, milk, cheese, chickens,” Fruitman told Power Play. “These kinds of things need to be dealt with.”

In its report, the committee acknowledged that it did not look at the supply management system’s impact on the price gap, but said it would be willing to in a separate probe.